I am bothered by the discrepancy in the value of individual brands across the Interbrand, Millward Brown and Brand Finance lists.  I am particularly perplexed as to why the differences between Interbrand and Millward Brown lists (both of whom use the “earnings split” method) are greater than the differences between Interbrand and Brand Finance lists (who use different approaches – Brand Finance uses relief from royalty).

I am grateful to Gabi Salinas’ “International Brand Valuation Manual” for casting some light on the reasons why this might be so – her book documents 16 variants of the “earnings split” approach, making it entirely plausible that variances within the application of a single approach might be greater than variances across different approaches.

Tagged as: Brand Valuation

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Gabi Salinas (with whom I had the pleasure of working at Brand Finance), now global brand manager at Deloitte Touche Tohmatsu, has just published her magnum opus on the topic of brand valuation.

The book is very thorough and a surprisingly easy read – a testament to Gabi’s ability to focus on the essential details of what is potentially a very dense topic.  It removes much of the mystery that currently surrounds the topic of brand valuation by outlining the core concepts and profiling the different methodologies in use.

Gabi’s obvious passion for the topic shines through.  Most other authors might baulk at the prospect of comparing and contrasting 40 different brand valuation techniques from more than 60 providers – but Gabi has painstakingly collected all this information and spends 180 pages (nearly half the book) reviewing and commenting on each model.

This dogged perseverence gives immense credibility to the other sections of the book in which she provides a higher level summary of the topic.  I would recommend the following three chapters in particular:

• Chapter 1 – the definition and economic relevance of brands
• Chapter 4 – summary of the main approaches to brand valuation
• Chapter 6 - classification of the 40 models reviewed

The book is a hugely valuable resource to anyone with a professional interest in brand valuation (and that is a wide set of audiences).   Despite the worrying frequency of equations with greek letters, the style is very light and the narrative very simple to follow.

For me, the one thing missing from the book is a clearer sense of how brand valuation fits into the broader topic of marketing accountability.  As it says in its title, the book is a “Manual” – it begins from the assumption that brand valuation is a valid goal to pursue, and provides the roadmap for achieving that goal.

Readers of this blog will know that my strong belief is that brand valuation is, with rare exceptions, a false trail for marketers to follow.  It does not provide definitive proof of the value of marketing, and it involves treating the brand as a separable asset of the business (an assumption entirely at odds with marketing’s goal of getting the brand embedded into all aspects of the business).  The uses of brand valuation are technical in nature, and few fall within the purview of marketing.

To be fair, Gabi did not conceive her mandate to be “brand valuation – what’s it for?” – she defines her remit as “brand valuation – how’s it done?”  She has produced a comprehensive overview of the topic and has documented in admirable detail the specifics of the various approaches and models.

Tagged as: Brand Valuation, Marketing Accountability

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I led the brand valuation section of the day-long seminar on marketing measurement today.  The seminar was run by Alan Middleton, the pre-eminent marketing professor in Canada and a true force of nature.  It was a huge pleasure to collaborate with someone who is so passionate about his subject, and so voracious in his appetite for new information and perspectives.

The seminar participants were all from the agency side – and all motivated by the desire to upgrade the quality of their interactions with clients so as to evolve from “vendors” into genuine business partners. 

They asked some very perceptive questions – but the defining point of my session was the reaction by one of the participants to the process for performing a brand valuation based on the earnings split approach.  He looked at the matrix we had just created of the drivers of the customer purchase decision and the extent to which they were influenced by brand, thought for a while, then commented ”this all seems rather squishy to me.”   Exactly.  And in a single word, he articulated the huge concern over the subjective nature of brand valuation.

Tagged as: Brand Equity, Brand Valuation, Intangible Value, Marketing Accountability

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Another day, another city, but the song remains the same. 

I am presenting at the Schulich Executive Education Center at York University in Toronto tomorrow.  I tried to define the remit of my presentation as brand and customer equity measurement but was asked to focus more narrowly on brand valuation.

Readers of this blog will be familiar with the approach I will take to the topic, and the caution I will sound about thinking of brand valuation as anything other than fodder for cocktail party conversations or a specialist tool to support limited and well-defined transactional needs (most of them having nothing to do with marketing).

Given that the participants are all marketers, I thought I would prepare a workbook that will allow us to generate in class a brand valuation based on the earnings split approach.  It should be a great way to illustrate the variables to which a brand valuation is most sensitive.  I will report back.

Tagged as: Brand Valuation, Marketing Accountability, Marketing ROI

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I have now had the chance to look at the latest Interbrand list in some detail.  The results seem plausible - double digit rises in the brand value of Google and Apple, halving of the brand value of Citi and UBS.  Some brands ekeing out gains in value of less than 5%, but many showing declines in the 5 to 10% range.  Net result:  a 5% decline in the aggregate brand value of the top 100 brands to $1.16 trillion.

So far, so good.  The worrying development is the increase in the inconsistency between the Interbrand list and those published by Millward Brown and Brand Finance earlier in the year:

•  There are only 33 brands that appear on all three top 100 lists this year, down from 45 last year and 46 in 2007
• The three providers only agree on the direction of the sign change in the value of 6 of the top 20 brands versus their value in 2008
• The inconsistencies are as great versus the Millward Brown list (compiled using the same “earnings split” methodology as Interbrand) as they are versus the Brand Finance list (compiled using the “relief from royalty” methodology)

On balance, I am glad that these brand league tables exist – they help to highlight the economic significance of brands, even if in the process they also demonstrate that brand valuation is a discipline in its infancy.

Tagged as: Brand Valuation, Marketing Accountability

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Interbrand has now released its 2009 league table.  The data shows a very modest decline in the aggregate value of the top 100 brands from $1.22 trillion in 2008 to $1.16 trillion.  The 5% decline contrasts with a 25% decline in the market value of the parent companies and results in a jump in the proportion of brand value to market value from 18% in 2008 to 23% this year.

93 brands are common to the 2009 and 2008 lists – notable departures from the list this year are Merrill Lynch, AIG and ING which together represented over $20 billion of brand value. 

86 brands are common to the last 4 years, of which 76 belonged to publicly quoted companies.  Using just this sample set, aggregate brand value was down 4% in absolute dollar terms versus 2008 but rose from 20% to 25% as a proportion of aggregate market value.

Interbrand scores well for internal consistency across the years – each movement in brand value is accompanied by an apparently plausible thumbnail explanation for the rise/decline.

What continues to cause doubt about the reliability of the numbers is the lack of consistency across the three main publishers of brand valuation league tables.  There are only 33 brands that are common to the three lists of the top 100 brands!  25 brands that appear on both the Millward Brown and Brand Finance lists do not feature on the Interbrand list, while Interbrand chooses to include 32 brands that do not appear on either the Millward Brown and Brand Finance lists.

Hence my advice to marketers – use these league tables to support a general assertion about the economic value of brands BUT beware of making any strong assertions about the value of individual brands.  Otherwise you will find yourself explaining why the brand values of Amazon, Apple, BlackBerry, Google, Marlboro and UPS differ by a factor of 2 or more – and why it requires a brand value of “only” $3 billion to crack the Interbrand top 100 list but over $6 billion to make it into either the Millward Brown or Brand Finance top 100.

Tagged as: Brand Valuation, Business Value, Intangible Value

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Interbrand will shortly be publishing its 2009 ranking of the world’s most valuable brands. Unlike Millward Brown and Brand Finance who published their 2009 rankings in the midst of the market meltdown in March, Interbrand has the benefit of publishing at a time of relative market stability (the S&P 500 traded in the range of 900 to 1,000 between May and August) and may therefore attract a little more media attention.

The publication of these league tables is helpful to marketers as it serves to highlight the importance of brands as economic assets.  Despite their obvious flaws (notably the lack of consistency between the values ascribed to individual brands by different providers), the sheer scale of the numbers is impressive – the aggregate value of the top 100 brands is over $1 trillion according to Interbrand and Brand Finance (nearly $2 trillion if you believe Millward Brown) and represents close to 20% of the aggregate market value of their parent companies.

Given that net tangible book value for the S&P 500 represents only 21% of market value, it is nice for marketers to be able to make the sweeping generalization that, in aggregate, brands represent as large a proportion of market value as tangible assets.

As I have noted before, this generalization masks a huge variation in the individual brand values (2% of market value for BP and Shell vs. upwards of 80% for Gucci, Puma and Burberry).

Tagged as: Brand Measurement, Brand Valuation, Business Value, Intangible Value

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This was the title of my presentation today at the town hall of a talented design and branding firm with which I have collaborated on a number of occasions.  Like so many others, they are grappling with the issue of how to respond productively to questions about ROI and the value of their work.

My mandate was simply to talk about the research and analysis I have been doing on a number of topics relevant to the business context and business impact of marketing.  I talked briefly about intangible value, brand valuation, the brand “bonus” and the relationship between brand strategy selection and post-merger financial performance (all topics on which I have shared topline results in this blog).

I hope I provided them with some interesting insights, and some confidence to engage in the discussion about the financial impact of marketing.  At the very least, I left them with a number of financial observations for use in their conversations with clients:

• Tangible book value represents only 21% of the value of US companies, and 33% of the value of Canadian companies
• Brand value represents an average of 15% of market value – but varies enormously by sector (ranging from less than 5% in energy and basic materials to over 40% in consumer goods)
• Strongly branded companies seemed to benefit from a cushion of 3 to 5% during the market meltdown of late 2008/early 2009
• In the two years following a merger, companies that used the more sophisticated forms of corporate brand outperformed those that used the two “expedient” forms of brand strategy by a margin of 5 to 10%

My parting advice to them was to use any request for ROI or brand value as an opportunity to engage in a discussion about the changes in customer and employee behavior that would result in signficant financial returns.  That would do two things:

• Convince the person asking the question that you are focused on improving the performance of the business
• Generate the working assumptions on which a credible model could be based

Tagged as: Brand Valuation, Business Strategy, Business Value, Causal Model, Intangible Value, marketing and finance, Marketing ROI, mergers

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I am in the process of responding to another RFP that stipulates that brand valuation is one of the deliverables.  Given the context,  it is clear that the client does not mean valuation in its financial sense.  What they appear to want is a methodology for brand evaluation.

I hate to pick nits but it is a source of considerable confusion when a term that has a specific meaning to a financial audience is used in a much broader sense by marketers.  Marketers are often guilty of using financial terminology to describe anything that involves measurement - they overlook the fact that many forms of measurement are non-financial (such as awareness levels, repurchase rates, willingness to recommend and so on).

For that reason, I have found it useful to make the distinction between two forms of brand measurement:

• Brand evaluation is the discipline of developing a quantitative (but non-financial) understanding of the strengths of a brand on multiple dimensions and with multiple audiences.  The focus of brand evaluation is understanding the level of customer value that the brand generates;
• Brand valuation is the discipline of determining the proportion of overall business value that is solely due to the impact of the brand on the behavior of key audiences.  The focus of brand valuation is on measuring the level of shareholder value that the brand generates.

 Brand evaluation is a discipline that should be embraced by any organization that wants to understand what is driving customer preference and internal engagement.  Brand valuation is a specialist discipline that is of particular value when an organization is contemplating a merger or licensing transaction, or when it is engaged in a trademark dispute.

Despite the popularity of league tables of the world’s most valuable brands produced by Interbrand, Millward Brown and Brand Finance or of the world’s most powerful non-profit brands produced by Cone, the managerial applications of brand valuation are surprisingly limited.  A brand does not become more valuable simply as a result of measuring it.  What actually makes a brand more valuable is when an organization is able to enhance the preference for the brand among its existing audiences, and how to promote the brand to new audiences.  The financial value of a brand is determined by the behavior of its audiences.

Brand evaluation is about strategy and management.  Brand valuation is about accounting.  My beef with brand valuation is that it distracts clients from the more productive task of identifying and measuring the sources of their brand’s value to customers, partners, and employees (brand evaluation) and on generating ideas for how this value can be increased.

Tagged as: Accounting, Brand Equity, Brand Measurement, Brand Valuation, Causal Model, Marketing ROI

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My admonition to marketers to be specific in their use of the “ROI” term makes me feel like King Canute, commanding the incoming tide to retreat.  If anything, the use of “ROI” as a general catch-phrase for “marketing accountability” is becoming more embedded.

I am conflicted about this – part of me delights in seeing marketers embrace the need for demonstrating accountability for their use of company resources (my new client last week even beat me to the punch in suggesting that we should articulate the commercial benefits we expected to result from our messaging assignment – amazing!); but part of me despairs that the ROI moniker will encourage financial types to see marketing as an essentially tactical discipline whose impact can be fully captured within the 12 to 18 month horizon typical for ROI measurement.

As any of you reading my posts on a regular basis will know, I have three main issues with the financial measurement of marketing and/or brands whether in the form of ROI or brand valuation:

1. First, it involves treating marketing/branding as an activity that is separate from the other operations of the business (which seems crazy for a discipline that claims to focus on the overall customer experience, rather than just its communications)
2. Second, it is hard to do.  It is genuinely difficult to construct a model that demonstrates the delta between “company with no marketing” and “company with marketing” – most people end up with a model that merely demonstrates the impact of marketing communication (in which case, my first point applies)
3. Thirdly, a financial model is rarely what the senior leadership of the company wants to see.  In my experience they are much more interested in an answer to the question “how is this investment in marketing going to impact the overall performance of the business?”

I have mentally committed to “having the serenity to recognize the things that cannot be changed” and to use each reference to “ROI” as the opportunity to discuss the nature of accountability rather than the trigger for launching into a lecture about the correct use of financial terminology.

Tagged as: Brand Valuation, Marketing Accountability, marketing and finance, Marketing ROI

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There is something very appealing about the simplicity of the argument that brands provide protection in a downturn.  I have been privileged to share ideas on this topic over the past few weeks with Raj Srivastava (Provost and Professor of Marketing at Singapore Management University), Dave Reibstein (Professor of Marketing at Wharton) and Vic Cook (Professor of Marketing at Tulane).  Both Raj and Vic have forthcoming articles on this topic that are well worth reading (based on the drafts that I have seen).

The articles take rather different tacks – Raj’s focuses on the mechanisms whereby brands deliver a financial bonus, and the need to maintain brand investment in a recession; Vic’s focuses on the magnitude of the bonus delivered, and whether it is a function of the relative importance of brand as a proportion of overall market value.

I will post links to both pieces once they are available.

Tagged as: Brand Valuation, Business Value, Intangible Value

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Vic Cook, Professor of Marketing at Tulane, has suggested that the scale of the brand “bonus” should be correlated to the proportion of brand value to overall market value.  I had resisted using the actual dollar values in any of the brand valuation league tables because of my skepticism about their accuracy (see “My Brand’s Bigger Than Your Brand”) but I have to admit that Vic’s suggestion is irresistible.  

If we can show that the level of the brand “bonus” enjoyed by a company was proportionate to the relative importance of its brand, this will be strong evidence that brands are a class of asset whose value is less volatile than the overall market.

Tagged as: Brand Equity, Brand Valuation, Business Value, Intangible Value

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My previous post (about whether there is any evidence that companies with strong brands suffered lower than average declines in their market value during the recent market decline) has generated a lot of interest, plus some suggestions for how the analysis could be extended and improved.

One idea was to extend the reference period to three months so as to capture the 2008 low in the S&P 500 on 20 November, and to extend the recovery period to three months from the S&P 500’s 2009 low on 9 March. 

This produces very similar results.  Once again, there is a nice symmetry in that the market decline in the “down” period is now 41% and the percentage gain in S&P 500 during the “up” period is 39%.  And once again, the portfolio of strongly branded companies registered a decline in value that was 6 percentage points less than the overall market (the aggregate market value of the 101 companies in this portfolio fell by “only” 35%).  During the market upturn, there was no significant difference between the performance of the branded portfolio and the overall market.

So there does appear to be empirical support for the intuition that brands provide some degree of downside protection…

Tagged as: Brand Equity, Business Value, marketing and finance

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People like to assert that brands provide some cushion for a company when markets are falling, and help them bounce back faster when the market begins to recover.

The last twelve months provide a wonderful testing ground for this theory in that we have had a period of rapid market decline (Sept/Oct last year) and a period of rapid recovery (March/April this year).   Interestingly, the percentage changes were almost identical – in the first period the S&P 500 fell by 35% vs. a rise of 37% in the second.

My question is “How did a portfolio of strong brands perform relative to the market?”

The answer (based on a portfolio of 102 companies measured relative to the S&P 500) is that strongly branded companies enjoyed a brand “bonus” of around 4% during the market crash.   In the rising market, they outperformed by less than 1%.

I actually constructed a number of different portfolios to see if a portfolio based on any of the major lists of “the world’s best brands” outperformed the market.  I created 9 portfolios in all using the Fortune, Interbrand, Millward Brown and Brand Finance lists, and combinations thereof.

The portfolio that registered the best performance in the down market was one based on the Fortune list of most admired companies (it beat the S&P 500 by 7%).  The portfolio that did best in the up market was a blended portfolio comprising companies that appeared on at least 3 of the 4 lists (it beat the S&P 500 by 15%).   Across the up and down markets, the blended portfolios performed the best.   

Maybe this is another case of “the wisdom of crowds”?  Across market cycles, a portfolio based on a synthesis of the Fortune, Interbrand, Millward Brown and Brand Finance lists outperforms portfolios based on any one of them…

Tagged as: Brand Equity, Business Value, Intangible Value, marketing and finance

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I delivered a webinar earlier today on the topic of “Frameworks for Brand Valuation” as part of the ANA’s marketing accountability series.  The series culminates in next week’s marketing accountability conference in New York.

It was a well attended session, reflecting the ongoing hope in the marketing community that there is a “silver bullet” out there that can definitively prove the value of marketing.

These were my conclusions for how marketers should think about the topic of brand valuation:

• It is very important for marketers to be able to explain how marketing is adding to the overall value of a business
• Brand valuation appears to offer the promise of providing definitive proof of the value of marketing – but this is, sadly, an illusion
• Brand valuation is a valuable tool when it is necessary to calculate a financial value for the brand as an independent asset
• However, it rarely makes sense to treat the brand as an independent asset for marketing evaluation purposes as this inevitably leads to conflict about the definition of brand and the extent of impact that brand has on the customer purchase decision
• It is more productive to think of brands as having a magnifying effect on the underlying performance of the business (the value of the brand is therefore contingent on the quality of the business it supports)
• The extent of magnification should be measured in terms of the three key drivers of business value – profit, growth and risk
• The differential impact of branding on any one of these three variables is definitive proof of how branding is enhancing the value of the business

Based on feedback so far, the material was well received.  But I am left with the sense that I have “rained on the parade” by revealing some of the practical problems with brand valuation.

Tagged as: Brand Measurement, Brand Valuation, Business Value, Marketing Accountability, silver bullet

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I am co-hosting a webinar next Tuesday (May 26) on brand valuation as part of the ANA’s Marketing Accountability series so forgive me as I rehearse my position on this topic.

For me, the key points are that brand valuation:

• Involves valuing the brand as if it were an independent asset of the business
• Is a specialist discipline with considerable value added to specific commercial contexts
• Is – contrary to popular belief – NOT a very effective mechanism for demonstrating marketing accountability
• Is often commissioned for reasons of corporate ego, not business insight

One of the exhibits I am creating for the webinar is “What does it take to get onto the list of the top 100 brands in the world?”  If you believe Interbrand’s data, you need a brand that is worth $3bn to crack the top 100. If you believe Millward Brown and Brand Finance, you need a brand that is worth $6bn (I have pointed out the inconsistency between the agencies in earlier posts so will not dwell on this now…)

For fun, I have decided to work out what kind of a revenue base you require in different industry sectors in order to have your brand appear in the global 100.   The ratio of brand value to revenue depends on two key factors:

• The relationship between market value and revenue for that sector
• The proportion of brand value as a percentage of market value for that sector

Using these two variables and a target brand value of $6bn, this is what I found to be the qualifying revenue levels per industry sector:

• IT – $30bn
• Healthcare – $34bn
• Consumer Staples/Durables – $36bn
• Financials – $77bn
• Industrials – $130bn
• Utilities – $175bn
• Energy – $190bn

Truly it is harder for a camel to pass through the eye of a needle than for an energy company’s brand to make it onto the list of 100 top global brands…

Tagged as: Brand Measurement, Brand Valuation, Business Value, Marketing Accountability, silver bullet

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I am still really bothered by the inconsistency of the latest brand valuation reports from Brand Finance and Millward Brown (see my post of two days ago). In theory, brand valuation should enhance the credibility of marketing and provide the basis for closer collaboration with strategy, finance and sales. In practice, it appears to do neither.

I have already commented on how the credibility of marketing is undermined by the huge variability in the values ascribed to individual brands in the different league tables. My focus today is on why brand valuation fails to promote effective collaboration between the disciplines.

In my experience, brand valuation exercises inevitably prompt the following questions:

• Are you defining “brand” to include the product itself? Or just as the “moreness” above and beyond the functional product?
• How exactly are you measuring the proportion of the purchase decision that is solely due to the brand?
• What is the contribution that Sales makes to the process?
• How can the value of the brand be rising when the value of the business is falling?
• If the brand represents a higher proportion of the value of the business, then which of our other assets are getting less valuable?

In my view, the problems all derive from the artificiality of the exercise of valuing a brand separately from the products, services, company or experiences that it embodies. If you believe that strong business performance is a result of the interplay between a number of valuable resources – a good product offer, effective production and distribution systems, strong channel partnerships, motivated salespeople and, yes, a strong brand – does it make sense to value any one of these components in isolation from the others?

The answer is “only under very specific circumstances.” These include acquisitions/disposals, legal disputes, licensing and securitization (for more information, please read my article  “Don’t waste time with brand valuation”). Outside of these contexts, brand valuation rarely delivers the expected benefits.

Tagged as: Brand Valuation, Marketing Accountability

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Last week two brand valuation agencies released their 2009 league tables of the 100 most valuation brands in the world. It is depressing to see that only 58 brands are common to the two lists.  How are we meant to take the topic of brand valuation seriously when two of the prominent agencies in this field disagree so widely about which are the most valuable brands in the world?

My general stance is to applaud anyone who tries to put financial or other business parameters around brands as a way to communicate the significance of their contribution to business performance. But I have to wonder whether the topic of brand valuation is not actually doing a disservice to the cause of marketing accountability by revealing such a lack of consistency in the results.

This inconsistency is everywhere – which brands make it into the top 100 list; what the value is of a specific brand (for 15 brands, this differs by a factor of more than 2 between the two lists); even whether the value of a brand has gone up or down over the past 12 months (for 21 brands, the two lists disagree about whether brand value increased or decreased).

The good news is that brand valuation is largely irrelevant to the issue of marketing accountability – see my earlier post on “Measurement is not the same as Accountability.”

Tagged as: Brand Valuation, Marketing Accountability

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